Entrepreneurs the engines of progress

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Jul 31, 2013 at 1:36 PMJul 31, 2013 at 2:17 PM

Robert J. Samuelson - Economic Commentary

You may have missed the obituary the other day of George P. Mitchell, who died at 94 and was someone of genuine consequence for the future of America and perhaps the world. He is not to be confused with George J. Mitchell, the former U.S. Senate majority leader (1989-95), who is still alive and, despite a distinguished career and higher public profile, has had a smaller impact. The Mitchell who died was the mastermind of modern fracking. More than anyone else, he unlocked vast reserves of U.S. natural gas and oil to production and, in the process, transformed America's energy outlook.

The juxtaposition between Mitchell the entrepreneur and Mitchell the politician is instructive. We pay obsessive attention to our political leaders, even when most leave little permanent legacy. By contrast and with some notable exceptions -- Bill Gates, Steve Jobs and Mark Zuckerberg -- we downplay our entrepreneurs. Politicians are by definition public figures, usually craving publicity. Entrepreneurs are usually shrouded in obscure commercial transactions and achieve fame (or notoriety) only among their business peers. History is often viewed through politics, though it's lived through economics.

This skewed perspective applies to Mitchell, the entrepreneur. For decades, geologists knew that huge reservoirs of natural gas and oil lay trapped in tight shale rock. The consensus was that tapping these supplies was too expensive. Mitchell rejected the consensus. By the early 1980s, his own medium-sized company -- Mitchell Energy & Development Corp. -- faced shrinking reserves of conventional natural gas. If shale gas could be made to pay, his supplies and the company's value would multiply dramatically.

Success took roughly two decades of trying different mixtures of highly pressurized water, sand and chemicals to split seams in the shale and release the gas economically. But once Mitchell proved this, a bonanza ensued. From 2005 to 2012, U.S. natural gas production, which had been slowly declining, rose by one- third. Similar techniques of "fracking" and "horizontal drilling" -- turning the drill pipe sideways along energy-bearing seams -- were applied to oil with equally spectacular results.

"In just the last two years, oil production ... has increased by more than 2 million barrels per day (and 37 percent), from 5.52 million bpd in July 2011 to 7.55 million bpd," writes economist Mark Perry of the University of Michigan. The production surge, he says, equals "the entire oil output ... of Brazil" and erases the output drop of the previous two decades.

Our world has been upended. U.S. oil and natural gas imports are falling. Cheaper energy is helping U.S. manufacturing, especially petrochemical plants using natural gas as an input. By one (industry-financed) study, the oil and gas boom and its side effects have added 1.7 million jobs. To be sure, fracking raises environmental concerns, mainly involving the disposal of wastewater. Indeed, Mitchell advocated "sensible" regulation of these side effects (also, interestingly, his family foundation has focused on coping with global warming). But whatever shale gas' drawbacks, they are dwarfed by the benefits.

It's been argued -- mainly by the Breakthrough Institute, a think tank -- that Mitchell's role is overblown and that federal-research advances into "geologic mapping," fracking and horizontal drilling underpinned his success. These helped, but the argument's weakness is that the same information and technologies were available to other oil companies, including better-financed "majors" (ExxonMobil, Chevron and the like), and none managed his feat. In truth, most "experts" considered what Mitchell did to be impossible. This included much of his staff. "My engineers kept telling me, 'You are wasting your money, Mitchell,'" he recalled to Forbes in 2009.

These narratives are worth retelling because they illuminate some bedrock sources of economic growth, jobs and higher living standards. In 2012, Mitchell ranked 239th on Forbes' list of the 400 wealthiest Americans with a net worth of $2 billion. It's fashionable these days to disparage the top 1 percent as being "filthy rich" and, symbolized by Wall Street traders and hedge-fund operators, not contributing much to the common welfare. Whatever the truth of this stereotype, Mitchell's life reminds us that many of the super-wealthy came by their fortunes the old-fashioned way: through patient risk-taking that also created huge social and economic benefits. Part of our problem today is that we don't have enough of this.

Robert Samuelson is a columnist for the Washington Post Writers Group. His column and weekly blog also appear online at telegram.com.